This is always a topical subject but particularly at uncertain times like these. With the generous exchange control allowances there is ample scope for individuals to diversify some of their assets outside South Africa.
However, whether you intend investing in a portfolio of funds, shares or just keeping money in a bank account, investing abroad is not quite as straightforward as it might seem. Needless to say our local currency is one of the most volatile in the world. The cost of buying foreign currency with rands can vary enormously. For example in December last year when the drama surrounding the Minister of Finance was at its height the Rand was R15.5/USD having been R14.40/USD at the beginning of the month. It weakened further to R16.20/USD in January. By the end of April once Pravin Gordhan had settled into his post, the rand had improved to R14.2 /USD. It continued strengthening into July after the much vaunted downgrade was averted, to R13,90/USD but then dropped to R14.70 when the latest bout of Hawks v Gordhan came to prominence.
Local politics and economics aren’t the only factors determining the value of the rand. What is happening in the US particularly and the strength of the USD also plays a significant role. Nevertheless, these swings are very significant and they mean that the cost of buying USD for example could vary by as much as 15% from the strongest rate to the weakest over a relatively short period.
Nobody can predict what the currency will do next although there is some consensus that it should strengthen over the next while if only politics didn’t interfere. Whilst the view can be taken that the rand will continue to depreciate overtime whatever happens in the shorter term and therefore it doesn’t matter when one buys foreign currency, one can offset the volatility by phasing one’s transfers abroad over a certain period rather than all in one go.
Then again, at the beginning of 2013 – just over three and half years ago – the rand/dollar exchange rate was R8.50! Where it will be in three years time is really anyone’s guess!